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PAUL STARES: Good day, everybody. Good day, everybody. Welcome to the Council on Foreign Relations. Thank you for coming here today. Some of you know me. Many of you don't. I'm Paul Stares. I'm a senior fellow here at the council, and I also direct its Center for Preventive Action -- excuse me -- under which -- whose auspices this meeting is being organized and the report was commissioned.

The purpose of the meeting is to discuss the growing threat of criminal violence in Central America. And we're particularly concerned with the Northern Tier countries, Honduras, El Salvador and Guatemala.

The murder rates and other criminal -- violent criminal behavior has been skyrocketing. It's particularly disturbing that -- how this has escalated in recent years, and I think it's now amongst the highest in the world. Besides the obvious public security implications of this -- these murder rates, there are clearly other consequences in terms of democratic governments in those countries as well as economic performance, all of which have significant interests or implications for U.S. interests in the region.

So with this sort of general concern in mind, we, the Center for Preventive Action, commissioned one of our council special reports to look at this, and we were very grateful that Michael Shifter, who is president of the Inter-American Dialogue here in Washington, agreed to do it. And he's produced an excellent report, and I think it actually complements another report that we did on the drug war in Mexico, which I commend to you.

We're going to hear from Michael about the report shortly. But first, we're very grateful that Jose Fernandez has agreed to also speak here today. Again, many of you know him. He is the assistant secretary of state for economic and business affairs, has long- standing interest and activities related to Central and Latin America in general. I will dispense with a full description of his bio; it's there for you to see. He is going to talk for 15, 20 minutes or so, I'm not sure exactly how long, to give the State Department's -- U.S. government perspective on this challenge and other related issues. And then, as I say, we will hear from Michael and then open it up for Q-and-A.

I just want to remind everybody that this meeting is on the record. There are press present, which we are -- obviously welcome you here today. But it is on the record, rather than the normal council rules of not for attribution.

One last housekeeping request: Please, if you have BlackBerrys and other electronic devices, turn them off, or at the very least turn them to mute if you do absolutely have to stay in touch with your respective motherships. (Laughter). I understand that that is hard to do, but please, if you could at least mute them.

So without further ado, I'm going to hand over to Jose. Again, thank you here -- for being here today, and I look forward to your remarks.

JOSE FERNANDEZ: Thank you. Thank you, Paul, and good afternoon, everybody. Good to see some friendly faces in the crowd, people that I haven't seen in a while, so it's good to be here.

I'm delighted to be here. My lane isn't necessarily security, but Central America is a part of the world where I've been very interested in for a very long time. In fact, one of my first pro bono jobs as a -- as a lawyer was working in Central America leading the ABA's Rule of Law Committee in the '80s, those of you who were around then, to try and work on human rights in -- during the conflict years and on labor arbitration and things that to this day remain relevant in that part of the world.

Clearly, one of the most urgent and complex challenges that we face in Central America is the dramatic decline in citizen safety, and that's why I'm delighted that Michael and the council decided to put together this report.

The average murder rate in Central America ranges from -- depending on the country, but overall it's twice as large as Mexico's. Closer to home, it's -- some -- in some countries, it's 16 times the murder rate, 16 times what we see in New York City. And it's not just an issue of human tragedy, but it's also an issue that the crime and insecurity take a heavy toll not just on the victims, but also on economic growth. Last year the World Bank noted in their report that the direct cost of crime exceeds 9 percent of GDP in several Central American countries. And in addition to that, it has the impact of discouraging business investment, discouraging firms from expanding and creating jobs.

And in El Salvador, which is a country that I -- that I'll talk about a little bit in a couple of minutes, it has one of the highest murder rates in the world. The World Bank has estimated that the rime and insecurity in El Salvador will cost the country almost 11 percent of its annual GDP.

And in fact, it's projected that a 10 percent reduction in the homicide rate would boost per capita income by 1 percent. So you would still have an unacceptably high murder rate if you were able to cut it in half, but at least you'd have some growth in a country that sorely needs it.

The U.S. is committed to helping Central American countries tackle their citizen security challenges. We do this largely through the Central American Regional Security Initiative, CARSI, which is an integrative program designed to work with our partners in the region to disrupt and dismantle the gangs and transnational criminal organizations that have generated so much of the crime in Central America. Between 2008 and 2011, fiscal years 2008-2011, Congress appropriated $361 million towards CARSI. And two weeks ago in Cartagena, the president announced that he intends to allocate an additional $130 million for CARSI in FY 2012 in recognition of the -- of the significant security challenges that you have in the region.

But you know, the crime and the violence in the region is not just a result of organized crime groups and gangs. In fact, it's not even -- you could argue that it's not the result of the gun traffic that certainly goes on from south -- from the U.S. down south, although it is a contributing factor. But you know, there are a number of other factors that I think Michael's report addresses and that I think it's important to talk about, and that's the larger societal problems such as the lack of access to education, employment and an ineffective government presence in many communities and a sense of a weak state apparatus.

Through CARSI, we work with government and regional organizations like SICA, la Sistema de Integracion Centroamericana, to ensure that U.S. assistance complements and reinforces the strategies and policies that the Central American countries themselves are implementing, both on a national and regional basis.

And our support isn't limited to simply tracking down the criminals. We're working to deal with many of the issues that Michael's report addresses, the root causes of violence, from impunity, which he talks about -- the 90 percent number is one that's -- is shocking to many of us -- from impunity to lack of opportunity. We're working to build accountable institutions free from corruption, institutions that respect human rights and enhance the rule of law. That's what I was doing in the 1980s with the ABA Rule of Law Initiative. We're still doing it 30 years later. We're building partnerships to improve courts and prisons, train police and prosecutors and enhance educational systems and job training centers.

And something that's important and that perhaps ought to be addressed in greater detail is we're working to build partnerships with political leaders, with civil society, but also with business and the elites in Central America that have to take a role, have to play a role in -- certainly in finding a solution to the crime.

In addition to new partnerships with Central Americans, we're building partnerships across the Americas. One example is our cooperation with Colombia in Central America that's alluded to in the report. In Cartagena, President Obama and President Santos announced a new action plan for regional security cooperation at the Summit of the Americas, and that's something that we'll be putting place. And Colombia has been a wonderful partner for some of our efforts in Central America.

But besides the hard-core security work of CARSI and other initiatives, we're doing a number of other things. And one of them I'd like to talk about is the Partnerships for Growth, PFG, which is something that I was very involved in last year and still continue to be involved. The Partnership for Growth with El Salvador is an agreement that we signed last November. And what it -- what that was -- it's an intensive and whole-of-government effort focused on creating broad-based, sustainable economic growth.

And it started with something that was -- that I had assumed was done a lot in government, but I understand that it's really not that common, and it started with a joint Salvadorian-U.S. economic analysis of the economic constraints to El Salvador's growth. This was an agreement that called for that study to take place.

The idea was that it would start from a -- from an honest, serious economic analysis and then would come up with the proposed solutions. It's one of four agreements that the U.S. has signed for a Partnership for Growth compact, the other three countries being Tanzania, Ghana, and one more that I will remember in a second.

MR. : Philippines.

FERNANDEZ: Philippines.

As part of the partnership, the U.S.-El Salvador economic team conducted an extensive analysis, and it basically came up with two constraints that we were going to tackle as part of the agreement. One is climate insecurity, and secondly what's called low productivity in exports. You know, the Salvadorean economy is largely dependent on exports, and yet the Salvadorean -- the percentage of exports in the Salvadorean economy is way lower than the norm in other CAFTA countries.

And so we looked at how we could address both of those constraints. We also spent a lot of time talking to thought leaders around the U.S. and also in Central America and here. Here I have to thank Michael and his Inter-American dialogue, and Peter, for hosting some of these meetings.

And we came up with a joint action plan that we signed in November, as I mentioned. And to address insecurity, our two governments agreed to support institutions and programs to prevent crime and violence, including supporting units -- special units to combat crimes against businesses and in transit, against buses, which is a major issue in El Salvador.

On payday, thieves, thugs would board the buses and just steal the salaries that people have gotten that day. So what was happening is that factory owners didn't announce what day people would get paid. So you could get paid on a Monday and then not get paid for another three weeks, simply because they didn't want to tell thieves when you'd be getting your paycheck, because that would just -- that would just cause more theft.

And what happened is, in a couple of cases when the thugs and the criminals were not getting what they wanted from the buses, they burned them, and they burned them with people inside. And so we thought that in order to address the economic constraint, we also had to deal with the insecurity issue, and so we focused on transit, on buses.

We agreed to work on professionalizing the justice sector institutions, again -- improving the effectiveness of the criminal justice system and enhancing the security of prisons -- again, things that Michael's report talks about.

We also agreed to work together to create jobs for at-risk youth, including the creation of small businesses and working with our SBA, job placement, and also to support community policing throughout El Salvador.

And then, to improve productivity, one of the things that we agreed to do was to undertake actions to improve the business climate, to facilitate infrastructure, which is a critical need in El Salvador, and also to improve the quality of education.

And then probably the thing that I was very proud of is we forged an agreement -- we agreed to support the establishment of a national growth council, which is basically a council composed of some of the large business associations in El Salvador and businessmen and -women in El Salvador to have regular meetings -- and in this case it's happening once a week, I'm told -- regular meetings with the president, with the government to talk about what were some of the items, what were some of the initiatives that they were hoping that the government would undertake in order to promote a business -- a friendly business climate.

So this is something that, as I said, started in November. We're very proud of it as something that we hope is different, because again, it started from a joint study and it was a joint agreement on the part of two countries.

The last thing I'll talk about that fits in well with the report is what we're calling Domestic Finance for Development, which is a program announced by Secretary Clinton about a year ago, which basically tackles one of the items that's throughout the report that Mike talks about, and that's the weak state, the weak state apparatus. And DF4D, Domestic Finance For Development, starts from the premise that in order for countries to be able to own their development, ultimately they have to be able to pay for it. And when you look at the tax intake on the part of Central American government, as Michael points out, it's low by regional standards, it's low by national standards -- by international standards.

So one of the things -- and as a result of that they, you know, they have trouble paying for education, for the basic services, for the court systems and the like. So one of the things that DF4D does is it works on tax administration. It doesn't get involved in what the actual rate -- tax rate ought to be. That's hard enough to do in this country. But what it does is whatever rate is agreed upon by the country, it talks about, how do you -- how do you collect it, how do you administer it. And then it says that if you're going to do that, then you're going to have to convince your citizens that those funds are not going to end up in a Miami bank account. So you've got to work on corruption, and you also have to work on transparency. The citizens have to be told where those funds are going to end.

So this three-legged stool of transparency, anti-corruption and tax administration is part of DF4D. It's something that we are working on in both El Salvador and in Honduras, which are two of the countries that I think need it the most.

So our hope is that, through DF4D, the -- Honduras and El Salvador will be able to increase their capacity to generate domestic revenues, to fund their own crime prevention and development programs and thereby reducing their dependency on foreign assistance.

So these are some of the ways that we're working on the issues that are outlined in Michael's report. I was heartened to see that many of things that we're trying to do were things that are in the report, but I'm more interested in hearing his thoughts and your thoughts on what are some of the things that are in the report that we perhaps are not doing yet. So with that, let me just turn it over to Paul and Michael. Thank you.

STARES: Terrific. Thanks very much, Jose.

And I think that's a good -- very good platform for you, Michael, to run with, if that's the right --

MR. : Correct.

STARES: -- mixing metaphors. (Laughter.)

MICHAEL SHIFTER: Thank you. Thank you, Paul, and thank you, Jose, for agreeing to join us and for your -- for your excellent comments. And I want thank everybody for coming. I see a lot of friends and colleagues here in the room. I look forward to a good exchange, discussion.

I particularly want to thank and recognize Carla Hills, who's co- chair of the dialogue of the council and a lot of other organizations I don't -- (laughter) -- some day I'll understand how she does it all, but so far it's a mystery to me. But thank you, Carla, for being here.

And I also just want to thank the council for giving me this opportunity. It's hard to compete with Afghanistan and Iran and North Korea and to think about Central America and try to focus some attention on Central America because I think the council should be commended for that because it often gets lost in some discussions of foreign policy.

I'm reminded -- if I could just start maybe with a few reflections, 12 years ago I did a report -- the dialogue did a report with the Council on Foreign Relations together -- this is a council report; the other one was a joint effort that we did on Colombia and Plan Colombia. That was in 1999, 2000, and many of you in this room will remember that debate and discussion.

And as I was writing this report, I found myself thinking -- going back to that report, 12 years ago, when I said -- asked myself, you know, why should the United States care about Central America? The same question I asked 12 years ago -- why should we care about Colombia; what should our objective be in Central America -- was the same question I asked -- what should our objective be in support of Colombia? What's the sense of U.S. responsibility to Central America?

Well, there were some similarities with Colombia. Here we have a situation where there is a democracy, rule of law that's at great risk because of spreading criminal violence to a neighbor, as Colombia was. And one could even argue that Central America the rationale is even more compelling. This is a set of countries that's closer to the United States. There are 3 million Central Americans who live in the United States and remittances, as Jose knows better than anybody, are a very important share of the economy of these countries. The United States had a very -- there was a time when Central America was the highest priority for U.S. foreign policy, in the 1980s. And so there's also a sense of responsibility as well. So for reasons of demography and history, one could even make the case that Central America is more important than Colombia.

And then, of course, there's the issue that's a term that used widely today of so-called shared responsibility, which was a term we used back 12 years ago in Colombia.

It's not that original. The United States is the largest consumer of drugs. Drugs is an important factor and dimension of the violence that is really having a tremendously adverse effect, particularly in Honduras, El Salvador and Guatemala, but also in other countries. Look at Costa Rica, a country that we still associate with sort of tranquility, serenity, peace and order. They are being hit very hard by the drug-related violence and are not prepared to deal with it very well and don't have an army, haven't had one since, what, 1948, and so they have to strengthen their police force.

So there's tremendous pressure on a lot of these countries. A lot of it is fueled by the drug issue. It's not only the drug issue. I think that Jose put his finger on it when he talked about weak state capacity, weak governance structures. And if you look at the comparison with Mexico, Mexico is also going through a very difficult period, but Mexico has state capacity. Central America is much less equipped, doesn't have the resources and the development of state structures to deal with this violence. So I think, in that sense, there are a lot of similarities.

And then what's the objective? The objective not to turn Central America into Sweden, as that wasn't the objective in Colombia as well. It's to get the violence under control, to reduce the levels so that you can have, as Jose said, economic development and a much more productive society, and that is so that situation is manageable and doesn't pose the threat that it currently poses. That was the -- that was the very similar argument that I made in the report 12 years ago with respect to Colombia.

The report covers a variety of causes of the violence, which I think it's hard to reduce to any one factor, and one has to be careful about not mixing one country to another country. It's quite different, and they have different phenomena. And in some countries, gangs are more important; in other countries, cartels are more important. Some countries, the effect of Mexico -- of the drug organizations going south is -- has a greater presence, and other countries less so. In some, there have been political crises. We know about the Honduras crisis and the coup of 2009. That had an impact on Honduras. So the report tries to look at it from a regional perspective, but also takes each country and national situations as well and look at the particular characteristics of national situations.

It also looks at attempts by governments to deal with this problem, individual governments: the so-called monduro (ph) approach, sort of round up everybody, arrest everybody, which is why you have overcrowded prisons and the prisons problems that we've had in a number of a countries, to some reform efforts to try to deal with corruption seriously, to try to improve the capacity of the police and so forth.

There have been some successes, some gains, but nothing very sustainable. And the situation, I think, if one looks in the last couple of years, has gotten worse, and insecurity is spreading.

The United States, I think, after this period of almost being obsessed with Central America in the 1980s, when the peace accords came, it kind of fell off the radar and then came back towards the end of the Bush administration and the beginning of the Obama administration. And Jose mentioned the CARSI program and other programs that are -- that have been in effect.

The recommendations that are in the report point to both things that I think would be useful to think about, both in terms of dealing with Central America as well as domestic policies, U.S. domestic policies that have a profound impact on Central America. This is also one of the situations in the world, I think, where one could make the case pretty persuasively that what happens in the United States in terms of drug policy, immigration policy, control of arms that are moving south does have an effect to our countries -- to our neighbors to the south, perhaps more than in other parts of the world.

The first point, the recommendation is really -- is always a tough call -- and this was also similar in the Colombia case, if we remember -- is this balancing act of the U.S. taking a more active, vigorous role in trying to shape a coordinated approach with at the same time making sure that there's buy-in by individual countries, in other words, that the United States is not going to impose a solution, but also, the United States can't come -- stand back and say, OK, every country can do what they want. There should be some middle ground there. And I think -- I think, to the administration's credit, they have moved a little bit in that direction of trying to balance that.

Also, this is not just not a Central American problem. This is Mexico. The successes in Mexico have moved south and have aggravated an already difficult situation. The drug routes have changed and now go through Central America, so the -- where drug routes have improved, those countries have a responsibility. The producer countries of coca -- we're talking about really cocaine in the case of Central America -- producer countries of cocaine -- Peru, Colombia and -- in South America also have a responsibility. And the United States is in -- uniquely positioned, I think, to try to mobilize that support and try to fashion a more coordinated approach.

There was, I think, a very promising meeting almost a year ago, I guess in June of last year, in Guatemala that Secretary Clinton convened. It was very, very instrumental and brought everybody together. But it's very hard to sustain a level of interest and support and resources that I think the situation requires and demands, and I think that is really a central challenge.

There are programs that -- one could list the long litany of programs that are in effect. Some of them are very helpful. But it just needs to be, I think, ratcheted up, given the gravity of the situation in the region. So the report tries to kind of identify where and how the U.S. should deal and balance this leadership role versus trying to encourage strategic sort of buy-in by the countries.

Second point is one that Jose touched on as well, which is having a strategic focus on institutional building. It's hard to see any long-term success in Central America in overcoming these problems unless you have a functioning and more effective justice system and police forces, that one -- that one can deal with what is criminal violence. And police are supposed to -- that's their job, that's their function. The police forces are very weak.

Again, there's been some focus on this, but I think it needs to be more -- it needs to get more attention. And that means that other things, like interdiction, going after high-profile drug kings and the like, perhaps should not the same attention. One has to do everything, but with limited resources, one has to pick and choose and select priorities, and in that situation this should get the highest priority, is the institution-building emphasis.

On the justice question, we have a positive example that one has to look at in Latin America, in Central America, which is the CARSI program, a U.N. program of a commission against impunity that has had a record, that's been in -- around for a couple and has had a positive record in going after and convicting -- prosecuting and convicting criminals, supporting the attorney general, supporting the public prosecutor office in Guatemala. This is a successful program that I think could be usefully thought about being applied in some of Guatemala's neighbors, especially El Salvador and Honduras, governments that I understand are interested in program, U.N. program. Obviously that's not something the U.S. could do on its own, since it's the U.N., but again, to really push for this, I think, would make -- would be very, very helpful.

There are also some community-level successful programs, initiatives that need to be looked at very carefully, scaled up, replicated elsewhere.

Nicaragua's an interesting case. It's a country where, I think -- which challenges some of the views of -- that poverty is the -- is the -- is the main explanation of violence. It's a very poor country, and yet the levels of criminal violence are much lower than -- for now, at least, to Salvador, Guatemala and Honduras. And that's due in part to the professionalization of the police force, but it's also due to some community programs -- level programs that have been successful, and they should be looked at more carefully.

The question of military aid and military assistance is a very tricky, sensitive and controversial one, in light of the history that we're aware of in Latin America, in Central America. One of the positive things in the region has been the downsizing of these militaries since the civil wars in the 1980s, and I think it would be -- one has to be very careful about building the militaries back up. And on the other hand, there's a lot of public pressure from -- for a much tougher stand on -- obviously people are concerned about public order and safety and security. But I think the United States should really be very cautious on this question of military assistance and really concentrate strategically on the building of an effective police force.

And finally, there's the issue of the fiscal reforms, some of the questions that Jose raised.

Again, the United States should not lecture Central Americans about taxes. But if this is going to work, this is going to have to be some commitment on the part of the private sector in countries that have low tax rates, weak tax collection, and there has to be -- that's the only way that one could imagine that this is going to happen.

In Colombia, there was a call in -- for a special tax, a security tax. That's also taken place in Central America. But more of that needs to be done so that people also contribute and really feel that they're committed to what's happening at the national level in dealing with this issue.

On domestic policies, those are the main highlights of the recommendations of what the U.S. should do dealing with Central America. Then there are things to be done here at home that would have a positive effect in Central America. The first is the drug policy, and we saw this come out at the Summit of the Americas in Cartagena. This was probably the biggest issue that was discussed. I think it was very encouraging that it was talked about at the summit because if -- the drug problem may not be a big political issue in the United States; we may not be seeing violence spreading around in our cities because of the drug issue, but certainly that's happening in the region. And it wasn't surprising that the leaders would bring this up with President Obama.

And one of the leaders on this issue has been Perez Molina, the president of Guatemala, who has been very forceful on this. And no one can accuse him of being soft on crime given his background. And yet he has -- is pushing this.

This is something -- I'm not going to get into, you know, what's a solution to the drug problem. But I do think that it's a problem that deserves serious discussion and debate and that the United States -- even though there's not political pressure to do so here, if the United States really were engaged seriously in really looking at other approaches, other alternatives, it would be a very positive sign for many of our friends in Latin America that there is a sense of shared responsibility.

Then there's the question of guns and money that's flowing south. This has been discussed widely. Again, this is -- this is an issue where a lot more needs to be done. There have been steps that have been taken, and I think the Obama administration deserved credit for that. But in terms of background checks of these guns and just the flow of them to -- that are supporting -- that are getting to the hands of criminal groups, again, a more energetic approach.

Finally, on the domestic policy side, immigration and deportations -- there's an estimated -- for example, in Honduras, 25,000 Hondurans were deported last year, I think similar number of El -- Salvadorans. There -- we're not going to end deportations, and that's not -- that's not the recommendation in the report. But what we do say is that it's very, very important to communicate exactly what the background of these deportees is and to really coordinate very closely to -- with officials in the host countries.

The sense is that this is being done to some extent. It could be done a lot more. And especially if people with criminal records go back to these countries that are already very fragile and very volatile, it's particularly urgent that that kind of effort is really taken very, very seriously.

Let me just conclude with two points, and then I look forward to your questions, comments and discussion. One is that this is a real opportunity. The need not only is great because of the -- because of some of the data that we have, the highest homicide rates in the world of last year in Honduras and El Salvador, Guatemala not far behind. So the need is very compelling, but also the opportunity. You have a set of governments in Central America that essentially are open and interested in working with the United States and cooperating more with the United States. That may not be the case a couple of years from now. One doesn't know. And so there is a window where a partnership can be forged that is very, very important and very effective. So there is a sort of a -- there is an opportunity and a moment here that needs to be seized, I think.

And just to conclude, I've gotten some skepticism about this report, as I did with the Colombia report 12 years ago. Let me conclude on this, and people -- as I presented the Colombia report, everybody said, you know, you're crazy; why should you support Plan Colombia; you know, this is a corrupt government and nothing will happen; it will all be wasted. And in some ways, you know people have -- I've gotten similar reactions to Central America, which has been interesting.

And it's true that the drug issue is not the concern it was 12 years ago, and it's also true that we're in a different fiscal and foreign policy environment.

Remember 12 years ago when Plan Colombia was approved, it was a year before 9/11, and 9/11 changed a lot of things. And then our economic problem -- and I don't think Plan Colombia would have been approved after 9/11. It would have been much more difficult. The attention would have been elsewhere. So the context is different.

But I just think it's important to recall that Colombia still has enormous problems. I don't think this is the -- you know, the greatest success story in the history of U.S. foreign policy. But the fact is that it's a very much better situation than it was. The Colombians deserve most of the credit for that, but the U.S. made an important contribution, and they -- because they sustained attention and high levels of resources and productive engagement with Colombia, and I think one can think about some -- and a similar kind of approach and strategy in dealing with Central America.

Thank you very much.

STARES: Great. Thank you, Michael. I take the skepticism as a good sign. I think if there wasn't the skepticism --

SHIFTER: Right. (Chuckles.)

STARES: -- that you wouldn't have been doing your job properly. So I appreciate that, and for your presentation, Jose.

We're going to open it up. We've got a good chunk of time. As normal, just put your name plates up, and I'm going to have probably a hard time reading everybody, but I will try my best. I think, David, you're first.

QUESTIONER: Thank you. David Holiday, from the Latin America Program of the Open Society Foundations. My question is primarily for Assistant Secretary Fernandez.

You spent a lot of time talking about El Salvador and the Partnership for Growth. (Chuckles.) And interestingly, there were -- there were reports in the Salvadoran press that the U.S. conditioned the Partnership for Growth on removal of the minister of justice and public security, which happened. And the person who replaced him was a general and former minister of defense. And actually, it's happened -- there has been a few interesting developments in the last few months, some worrisome and some interesting.

A couple of sort of the worrisome developments are discussion -- or the movement of -- within the police, of personnel, including perhaps putting some less savory people in different positions of leadership. Concurrent with that is a weakening of the inspector general's office, who resigned and has not been replaced. And it seems those two things are very much linked, because if you don't have good accountability, then, you know, I can say whatever I want about someone, but we actually don't know who's sort of -- who are the good guys within this -- the police force or not.

And I was reminded because recently I met with the head of international cooperation of the Colombian police. And his own personal narrative really started off with saying, you know, when I joined the police, it was so corrupt, I really wasn't sure I should be there, but then we started arresting the bad guys, and I myself put the cuffs on a colonel. And that -- and I think we sometimes lose track of the importance of accountability -- internal accountability within police forces, and external as well -- you know, criminal prosecution, where necessary. So those are the -- kind of the worrisome developments.

And the positive thing that I'd like your comment on -- or not positive -- it's positive that homicides have been reduced, but there's a very interesting gang truce now. And I don't know -- thoughts on that? What sort of should -- what are the parameters of, you know, when -- obviously, we have a lot of experience with gangs in our own country and sort of -- I don't know. What do people think about that reality?

STARES: There's a lot there. (Chuckles.)

FERNANDEZ: (Chuckles.) I feel like a mosquito in a nudist colony; I don't know where to begin. (Laughter.)

The -- look, I mean, accountability is critical, and it's part of what we -- what we stress -- both of us stressed. The agreement actually provides for specific milestones that we want to meet for specific things that will be done within a short period of time and then medium- and long-term, all the way to five years.

But I'm not familiar with the -- with the -- with the situation with the -- at -- in the accountability office in El Salvador, but it's -- it is something that, you know, we have -- we are scheduled to have a meeting with the Salvadorians every couple of months on the progress, and I'm sure that's something that will come up if that is an issue. But I'll be the first to say that we insisted on -- both sides insisted on making sure that we had -- we had accountability and to -- and to focus on results as opposed to process.

STARES: Do you have anything to add, Michael?

SHIFTER: I would just add that, you know, I think this question, the last part of your question, about this -- the gangs and the truce and all of this I think deserves a lot of debate, frankly.

And you know, I don't think it's the -- I'm not saying I think it's the solution, but one has to recognize if, you know -- if you're living in El Salvador and there's a truce that produces no violence, that's something that's very meaningful and to take to account. I don't -- you know, I'm not saying it's the answer, but I have seen some comments and some analyses that have come out of the Salvadoran situation, and it just strikes me that there are a lot of issues there. And they're not -- haven't been thought through. And I haven't thought them through because this has just happened. And -- but I think -- I would -- I think it's something that's worth looking at without just saying either this is the solution or this is terrible and we can't even think about this, because, you know, it has consequences.

STARES: Thank you.

Johanna (ph).

QUESTIONER: Yes. Thank you, Paul, and thank you to both of you for a very good overview. I -- something struck me in the report, Michael, about the recommendation on the rule of law because I think we've seen this for 25 years. And not as a critic of what you're saying, but we've invested billions, literally, of dollars in improving court systems; we've built Kubla Khan legal palaces. But the access to justice still remains a real key issue and people's confidence in the legal system continues, in polling that we read, to be very low.

So I was wondering, given new technologies and tools that exist, whether one could do things in the field of alternative dispute resolution that begin to give people confidence that the state does care about justice, whether it's the robbery of someone's salary, which is not necessarily a gang action, but a criminal action. I've seen very little progress there, a lot of push on the police, which I think is an important entry point, but the police without a legal justice system is only a part.

So have you thought -- and Secretary Fernandez, perhaps you as well, coming out of the legal profession -- thought of ways that you could provide a better sense of access that would give citizen confidence as a first step to building a stronger state institution?

MR. : (To colleague.) (Do you want me to ?) --

QUESTIONER: In 20 seconds, right? (Laughter.) Right.

SHIFTER: As you know -- as you know, Johanna (ph), there's been -- I mean, that's a great question. And as you know, there's been a lot of work in a lot of places in Latin America on alternative dispute resolution, and it's been -- some of it's been very, very positive. And I think if one looks at sort of this whole issue of rule of law and justice and look at what happened in the last 25 years, that's one of the -- that's one of the areas where there's been progress.

QUESTIONER: But we don't have "Judge Judys," I mean, except on Univision. But I think -- (laughter) -- I've -- seriously, I've always thought, Michael, that that gives people more of a sense that you get a resolution of a dispute --

SHIFTER: Right.

QUESTIONER: -- than going to some court system where you can't even get in the door --

SHIFTER: Right, right.

QUESTIONER: -- because you don't have access to it.

SHIFTER: Right. Well, I had "Judge Judy" in the draft, but they took it out --

QUESTIONER: Oh. (Laughter.)

SHIFTER: -- one of my recommendations. But they thought it wasn't appropriate for a council report, so --

QUESTIONER: No.

FERNANDEZ: But let me see if I can -- I think you bring up an excellent point, and it's true. For the last 30 years, there's been a lot of money poured into --

QUESTIONER: We've been on a lot of ABA committees.

FERNANDEZ: -- a lot of ABA committees, a lot of ABA money that has -- that has gone into Central America.

QUESTIONER: Mmm hmm. (Affirmative.) Yeah, legal --

FERNANDEZ: When I looked at the issue, one of the -- one of the things that struck me was the cost of the lack of access. You know, you get into -- and it's in Michael's report, the -- not just the impunity but also the lynchings, people taking justice in their own hand, and also the fact that the failure to observe the law permeated a number of other areas in the -- in the civil society in Central America.

When we looked at it, one of the -- one of the suggestions was some sort of out-of-court process, arbitration and the like. The issue there that I was always coming up with is you can't fix a legal system by circumventing it. You actually have to address the system itself.

There's been a lot of work done on it, and I think it's going to be -- you know, the criminal process and the accusatory process is slow. There's been talk and it's been -- the ABA and others have worked on this in Mexico -- of putting in a much more Anglo-Saxon -- which has its own problems -- Anglo-Saxon system of direct trials, less of an accusatory "fiscal general" type of system.

The other angle that I think is important -- and I never got to do it because I ran out of money in El Salvador, but I think it'd be -- in Central America -- but I think it'd be useful -- is our concept of small claims courts, which is something that the Brazilians have used in some -- in some cases.

QUESTIONER: Right.

FERNANDEZ: And it's a way of -- within the system -- you're not circumventing the system through arbitration -- of improving the system.

And I think that's something that, if I ever have the chance, I'd love to work on.

STARES: Barry Calder (ph).

QUESTIONER: Yes. Michael, in the report and in your presentation, you -- I think your preferred solution is something along the lines of the cooperation between the U.S. and Colombia that has led to a better situation. What I'm wondering about now is what you think about the future of the ideas to legalize drugs. As you mentioned, Perez Molina has come out strongly for legalization. It came up at Cartagena as a big issue. The U.S. isn't interested in that, particularly this year, I would think.

And so is there a danger that we're going to diverge with one of the key countries in Central America, or do you think maybe with financial aid and other support, we might get them to moderate their views on this, because I feel we're not changing soon, the United States, but there are powerful forces, (maybe ?), to change down there.

MR. : Jose -- (inaudible)?

FERNANDEZ: No. (Laughter.)

SHIFTER: My sense is that there's a consensus that the current drug policy is not really producing results, and it's been in effect for a long time. I don't think -- I think we're very far from any kind of alternative consensus. And legalization is -- is a way to get attention and to provoke a debate. Hopefully it leads to -- in a constructive way.

But I think staking out -- I mean, you know, I think if one -- one doesn't rely have a lot of basis for making -- you know, for making the claim that this is going to really be the solution of the problem, of the drug problem. And Perez Molina, I think, got a lot of attention in his position, but my sense is that there's room for a lot of discussion and that there are other measures.

There was a Latin American Commission report led by President Zedillo, President Cardoso and President -- former presidents Zedillo, Cardoso and Gaviria, came out in 2009, which I think was -- sort of laid out in a very sensible way, you know, that this is really having a very negative -- current policy is having very negative consequences. And there may be ideas that are on the table, and decriminalization of marijuana, focused less on sort of rounding people up and -- (inaudible) -- I mean, there are measures that are intermediate measures that don't go sort of towards legalization.

I think that it's a mistake to think that this is a unified Latin American position. As you know, Perez Molina called a conference -- right? -- in Guatemala, and they had two presidents who showed up and other presidents didn't show up. So even if you take -- forgetting about Latin America for a second, just take Central America, take five countries, that there are very sharp differences in view.

What they agree on is that something else needs to be debated and discussed, and I think the United States not just should say, well, this is -- you know, let's listen to the Latin Americans and let them (say ?), but really engage in it, use the expertise that's in this country. And a lot of people know about this drug issue because they've been studying it for 25 years or whatever, have a lot to say, should be part of that discussion and try to help fashion measures and approaches that don't go -- you know, that are realistic and that could -- that could have an effect.

I should also say that the drug problem -- even if one were to wave a magic wand and solve the drug problem, you know, there's still criminal -- there are a lot of sources of criminal violence that have nothing to do with drugs. There's, you know, trafficking of arms and people and extortion and kidnapping. So we go back again to the issue Jose raised first of just the kind of institutional state capacity which is the underlying challenge, and that shouldn't be lost sight of as we -- even as we tackle alternative approaches to the drug issue.

STARES: Any comments?

FERNANDEZ: Sure. Look, I mean, you really feel for the Central Americans and discussing --

QUESTIONER: (Inaudible.)

FERNANDEZ: Sure. Sorry.

You feel for the Central Americans on this point because they really are between a rock and a hard place, in this case between the U.S., the largest consumer, and -- you talk about the balloon and how -- the balloon effect on Colombia. You improve the drug situation, but it moves on to other countries, and it's now hitting them.

We don't think legalization is the answer. And I was in Cartagena, and what President Santos was very clear about is that he wasn't proposing legalization, he just wanted to have a discussion.

And that's something that our government was obviously willing to do. There are a number of other countries that are not in favor of legalization, even within Central America, as Michael pointed out. So this is -- this is a debate that's occurring, and I think it's going to go on for a while.

People who have looked at this issue in Europe, where you've had some legalization of some, quote/unquote, soft drugs, you know, have seen a rise in addiction. And it's not -- it's not a pretty picture. So we have our concerns.

And then knowing Central America, I shudder to think what a -- you know, a well-financed above-ground drug dealer would do in a -- in a -- in a -- in a country that has a weak state apparatus. And just think of that as a -- as a consequence.

So I think -- I think our government is -- has come out against it. We're obviously willing to discuss it, and I think this is an issue that has a lot more than simply just a talking point. It is a very complex situation.

STARES: If I could add my two cents on this, in one of my many incarnations as a policy analyst, I actually wrote a study on drug legalization for the Brookings Institution about 15 years ago. And people propose this as if it almost means no regulation, when even licit drugs, legal drugs, have some kind of regulatory regime that controls, you know, which drugs in what quantities are sold when to whom, how, advertising. This is a hugely complex set of questions that have to be addressed. And as far as I know, even the proponents of legalization have never systematically gone through what a regulatory regime would look like for currently illicit drugs, because it's not as if they would suddenly become available to everybody anywhere, anyhow, et cetera. But correct me if anybody knows of details -- assessments of this.

But each of those regulatory constraints on the sale of what would now be legal drugs have implications for the marketplace, for public health, even still for criminal activity. So it's not as if it's somehow a -- as Michael says, a magic wand that this issue would disappear. But I'd be happy to send references to the study I did on this so many years ago.

Anyway, let's see, who's next? I think Bert (sp).

QUESTIONER: OK.

(Phone rings.)

QUESTIONER: Sorry.

QUESTIONER: I think Jose and Michael gave a beautiful analysis that covered 99 percent of the -- of the ground. But there's one thing that I would -- (inaudible) -- a little bit. I've been living for seven years in Central America and the Caribbean as an IDB representative. And the one thing that struck me was the very low degree of social emergence in these countries. It was always the same families who were doing -- always controlling every business, every industry, every banking -- and -- (inaudible) -- for it. And Jose mentioned the low labor productivity.

And it goes a little bit beyond the physical productivity, because many of these countries gambled on the zona franca model, the export processing industry.

But that one suffered from two things. First of all, it suffered from a lot of absentee landlordism. It was quite often not local entrepreneurs who set up these things. They might have been involved in a joint effort, but often it was Chinese companies or Korean companies or faraway companies. There was little learning curve on the side of the entrepreneurship, but also on labor. It's -- for labor, it was a dead-end street because it was basically the old day labor situation. You could maybe have a job tomorrow, but certainly not next month, or -- and so on. So it didn't really emerge.

The other aspect that I would like to point out is the educational system in these countries, because there is more effort dedicated to social sciences and letters and whatever than there is to some core activities in education that can speed up the development process in the country -- in math, science and technology. And the region is underrepresentative in those areas. Too few students choose those relatively hard-core things, and they miss a lot of opportunities for learning and for again speeding up labor productivity in the future. And in the other one, you have beautiful business schools that the IDB supported very strongly in -- (inaudible) -- but with very high tuition rates or whatever. The access to that beautiful institution is relatively limited in terms of social emergence of certain groups.

And those two things, I mean, have been hampering the development process in the region rather strongly.

FERNANDEZ: Let me -- I have a question. Why do you say that the -- you started out by saying that the free zone market hasn't worked. My understanding is that it has worked. In a place like Costa Rica has -- it's -- it seems to have worked. In Honduras, with the maquiladora, seems to have worked. I'm not aware of the Salvadorans having much in the way of free trade zones. Tell me again why you think it hasn't worked.

QUESTIONER: Well, they started relatively early. But then Mexico moved into NAFTA. And Mexico became a major, much more large-scale producer of many things. And a lot of higher-technology stuff, including in the -- in the motor industry moved to Mexico and never returned. So -- and the other one is Mexico itself suffered from the emergence of China very strongly in that area.

So in the end, what stayed in the region often has become a very low-margin, relatively low-wage type of thing, whereas you would see, in terms of development process, what's happened in China, that you've started at a low end, but you get out of cheap textile and cheap (food or whatever ?) rather quickly, and you move into the higher electronic business or whatever. That process has not happened in Central America. Or where it has happened, it has been happening by very low import -- or very high import tariffs and things like that, too much protection.

FERNANDEZ: My understanding has been that the tariff regime in Central America is quite low, at least with respect to the U.S.

I will agree with you that the educational system, some of which we've targeted in the -- that we've targeted both in the PFG and in other programs in Central America is a critical need.

And part of the reason why you still have a system that depends on labor inputs, i.e., cheap labor is that you haven't been able to raise the educational system, not necessarily in a -- in a classic liberal arts setting, but in a vocational school type setting. And that is something that we've tried to address not just through the PFG, but through other programs. And that is a challenge.

QUESTIONER: Yeah.

STARES: Mark (sp), did you have a question?

QUESTIONER: Very kind of asterisk, but if I could hop on the legalization of drug question, since you raised your study, has there been another study out there that's talked about kind of if you taxed it and regulate it and focus the money that was supposed to be focus on enforcement into drug treatment and other programs, what that might do to the spectrum of challenges that we might face and Central America might face?

MR. : Do you know, Peter (sp)?

QUESTIONER: Not really. I mean, it's one of the problems --

MR. : Peter (sp) -- (inaudible). Peter (sp), go ahead.

QUESTIONER: I mean, it's so hard to sort of begin to play out the -- what happens if you do begin legalization. First you have to define a whole lot of details like you're really talking about legalization, or you're talking about decriminalizing marijuana. And you know, people use that word in a variety of ways. And the most important question is not that question; it's what are the real alternatives, as Michael suggested.

And you know, it's not just that legalization is bad. It is bad. But illegalization is bad also. And you have to weigh one against the other, and you have to sort of look at the outcome. You have to be about -- whether it's alcohol or prescription drugs or marijuana or other drugs, what is a strategy that will reduce the amount of cost to societies?

And it's not a question -- it's not a moral issue; it's a very pragmatic issue. And I don't -- that's what I think is wrong with taking that stand against legalization without looking at the costs of keeping it illegal.

SHIFTER (?): (As we all know ?), it's the net -- a net assessment has to be, you know --

QUESTIONER: Exactly. And that's the problem. I mean, you can try and work out all those things, but you get lost after the first iteration of what is it going to cost, how many people are going to now be using drugs that weren't using them, et cetera.

STARES: It's hard to do a controlled experiment in a -- in a particular locality, too, because of the external factors that come into play.

SHIFTER (?): Right.

STARES: We've seen this in the Dutch case. So it's just hard to say, well, let's give it a try here and just see how it works, because is that a true experiment? But we can get into this.

Christopher (sp), I think, is next.

QUESTIONER: Yes. So in the discussion around the comparisons between Plan Colombia and Central America, one of the things that wasn't mentioned was that Colombia is an upper middle-income country with institutional capacity, human capital; Central America, many low- income countries, lower middle-income countries, relatively lower institutional capital and human capital, and so therefore the challenge of building institutions that can confront this massive traffic of tens of billions of dollars of drugs every single year.

And the other thing to note is that despite the successes of Plan Colombia, Colombia, Peru, Ecuador continue to produce lots of coca. (Chuckles.) And the coca continues to flow north. And so while there has been some production of marijuana, which Mexico has done for years, and heroin and all that, all the opiates, the coca is still flowing despite the successes of Plan Colombia.

So the question I have in terms of the U.S. government focus and effort is going after the money. And obviously, you have to strategically focus your efforts. You can't do everything everywhere. You can't fix these societies overnight in the short term.

One of the areas that I think merits emphasis is on bulk cash smuggling, on going after money laundering, and then also on financial disclosures by senior officials in the justice sector, by judges, et cetera. Obviously, people around the world think of all kinds of creative ways to move and to hide money, and we grapple with this problem even in this country.

But I would be very interested in our distinguished panel's thoughts on those issues.

STARES: Going after the money.

FERNANDEZ: You know, Michael, this is your show. You keep --

SHIFTER: I'd be happy to --

FERNANDEZ: I'll let --

SHIFTER: I just want to defer to the, you know, authority, you know. (Laughter.)

FERNANDEZ: Right. The -- I mean, I think there's something in the report, actually -- I was looking for it -- on how the -- how few convictions there have been on money laundering in Central America.

SHIFTER: Yeah.

FERNANDEZ: And that's -- that goes -- you know, you can -- that goes back to the -- to the need to create institutions, to focus on the courts that -- the criminal courts. And I will agree with you, it's something that -- as we look at the -- at the problem, the rule of law and the -- and the ability to enforce laws already, these laws exist. They don't need to change the laws; it's just a question of enforcing them.

And it's a critical issue.

And that's where focusing on -- focusing on technical assistance to improve the legal system and the policing system is something that we will continue to do.

FERNANDEZ: Yeah, I would just say -- I mean, I think your point is on the mark, and we deal with it a little bit in the report, maybe not at quite the emphasis. And again, the challenge was always sort of, you know, you can't do everything, and so what's going to be the focus. But we had -- I should mention we had an advisory committee that met several times and this issue came up a lot. A lot of the people sort of talked about this as really where a lot of attention needs to be done. I think there's been some things, but clearly not as much as there needs to be, and so I think it does deserve a lot more resources and priority. I think you're -- I think it's hard to argue with that point.

STARES: Karen?

QUESTIONER: Thank you very much. Is it on?

STARES: Yeah, it's on.

QUESTIONER: Great. So my name's Karen Bolker (ph) and I'm working with CeaseFire International. This is a program that based in Chicago that uses a public health model for addressing stopping the spread of violence by treating violence as if it were a disease. And I know that you have some research that you've done on that yourself in the past.

So I was really struck, in the report and in the predominance of the comments here today, on the emphasis on the top=down approach, the systemic, working with the governments, working with rule-of-law type establishments. And there's in one of your recommendations a comment that we should -- that the Central American governors should be the ones to fund the local efforts.

And I just wanted to maybe ask a little bit -- tease out a little bit more why is it -- why is that something that should only really be done by the Central Americans, and should we not be having both a bottom-up and a top-down approach, and especially when you have some methodologies that maybe could actually sort of quell the violence while you're dealing with some of the larger systemic issues that are by definition longer term.

And I noticed that the title is "Countering Criminal Violence," whereas the center is on preventive action and the method that we've worked with actually seeks to prevent the incidence of violence in the first place. So it focuses like a (higher beam ?) or whatever on the violence as opposed to all the other issues, the noise around the violence. So if I could just maybe get some reactions from you (and ?) -- (inaudible).

SHIFTER: Sure, well, thank you for the question. I mean, I don't think the report says that the U.S. shouldn't fund -- you know, also support local, you know, initiatives. But the point about the national governments, which they -- you know, that it's important that they, you know, assume responsibility, not that the -- only local initiatives should be funded by a national government and that the U.S. cooperation should not be part of that. That -- you know, that wasn't the sense.

QUESTIONER: OK.

SHIFTER: But it was simply -- so I think that the United States, when we talk about -- (here ?) one of the recommendations on some of the sort of -- sort of the prevention programs that are more successful, that these should be encouraged, replicated, scaled up. You know, so that's -- needs to be -- think there is

PAUL STARES: Good day, everybody. Good day, everybody. Welcome to the Council on Foreign Relations. Thank you for coming here today. Some of you know me. Many of you don't. I'm Paul Stares. I'm a senior fellow here at the council, and I also direct its Center for Preventive Action -- excuse me -- under which -- whose auspices this meeting is being organized and the report was commissioned.

The purpose of the meeting is to discuss the growing threat of criminal violence in Central America. And we're particularly concerned with the Northern Tier countries, Honduras, El Salvador and Guatemala.

The murder rates and other criminal -- violent criminal behavior has been skyrocketing. It's particularly disturbing that -- how this has escalated in recent years, and I think it's now amongst the highest in the world. Besides the obvious public security implications of this -- these murder rates, there are clearly other consequences in terms of democratic governments in those countries as well as economic performance, all of which have significant interests or implications for U.S. interests in the region.

So with this sort of general concern in mind, we, the Center for Preventive Action, commissioned one of our council special reports to look at this, and we were very grateful that Michael Shifter, who is president of the Inter-American Dialogue here in Washington, agreed to do it. And he's produced an excellent report, and I think it actually complements another report that we did on the drug war in Mexico, which I commend to you.

We're going to hear from Michael about the report shortly. But first, we're very grateful that Jose Fernandez has agreed to also speak here today. Again, many of you know him. He is the assistant secretary of state for economic and business affairs, has long- standing interest and activities related to Central and Latin America in general. I will dispense with a full description of his bio; it's there for you to see. He is going to talk for 15, 20 minutes or so, I'm not sure exactly how long, to give the State Department's -- U.S. government perspective on this challenge and other related issues. And then, as I say, we will hear from Michael and then open it up for Q-and-A.

I just want to remind everybody that this meeting is on the record. There are press present, which we are -- obviously welcome you here today. But it is on the record, rather than the normal council rules of not for attribution.

One last housekeeping request: Please, if you have BlackBerrys and other electronic devices, turn them off, or at the very least turn them to mute if you do absolutely have to stay in touch with your respective motherships. (Laughter). I understand that that is hard to do, but please, if you could at least mute them.

So without further ado, I'm going to hand over to Jose. Again, thank you here -- for being here today, and I look forward to your remarks.

JOSE FERNANDEZ: Thank you. Thank you, Paul, and good afternoon, everybody. Good to see some friendly faces in the crowd, people that I haven't seen in a while, so it's good to be here.

I'm delighted to be here. My lane isn't necessarily security, but Central America is a part of the world where I've been very interested in for a very long time. In fact, one of my first pro bono jobs as a -- as a lawyer was working in Central America leading the ABA's Rule of Law Committee in the '80s, those of you who were around then, to try and work on human rights in -- during the conflict years and on labor arbitration and things that to this day remain relevant in that part of the world.

Clearly, one of the most urgent and complex challenges that we face in Central America is the dramatic decline in citizen safety, and that's why I'm delighted that Michael and the council decided to put together this report.

The average murder rate in Central America ranges from -- depending on the country, but overall it's twice as large as Mexico's. Closer to home, it's -- some -- in some countries, it's 16 times the murder rate, 16 times what we see in New York City. And it's not just an issue of human tragedy, but it's also an issue that the crime and insecurity take a heavy toll not just on the victims, but also on economic growth. Last year the World Bank noted in their report that the direct cost of crime exceeds 9 percent of GDP in several Central American countries. And in addition to that, it has the impact of discouraging business investment, discouraging firms from expanding and creating jobs.

And in El Salvador, which is a country that I -- that I'll talk about a little bit in a couple of minutes, it has one of the highest murder rates in the world. The World Bank has estimated that the rime and insecurity in El Salvador will cost the country almost 11 percent of its annual GDP.

And in fact, it's projected that a 10 percent reduction in the homicide rate would boost per capita income by 1 percent. So you would still have an unacceptably high murder rate if you were able to cut it in half, but at least you'd have some growth in a country that sorely needs it.

The U.S. is committed to helping Central American countries tackle their citizen security challenges. We do this largely through the Central American Regional Security Initiative, CARSI, which is an integrative program designed to work with our partners in the region to disrupt and dismantle the gangs and transnational criminal organizations that have generated so much of the crime in Central America. Between 2008 and 2011, fiscal years 2008-2011, Congress appropriated $361 million towards CARSI. And two weeks ago in Cartagena, the president announced that he intends to allocate an additional $130 million for CARSI in FY 2012 in recognition of the -- of the significant security challenges that you have in the region.

But you know, the crime and the violence in the region is not just a result of organized crime groups and gangs. In fact, it's not even -- you could argue that it's not the result of the gun traffic that certainly goes on from south -- from the U.S. down south, although it is a contributing factor. But you know, there are a number of other factors that I think Michael's report addresses and that I think it's important to talk about, and that's the larger societal problems such as the lack of access to education, employment and an ineffective government presence in many communities and a sense of a weak state apparatus.

Through CARSI, we work with government and regional organizations like SICA, la Sistema de Integracion Centroamericana, to ensure that U.S. assistance complements and reinforces the strategies and policies that the Central American countries themselves are implementing, both on a national and regional basis.

And our support isn't limited to simply tracking down the criminals. We're working to deal with many of the issues that Michael's report addresses, the root causes of violence, from impunity, which he talks about -- the 90 percent number is one that's -- is shocking to many of us -- from impunity to lack of opportunity. We're working to build accountable institutions free from corruption, institutions that respect human rights and enhance the rule of law. That's what I was doing in the 1980s with the ABA Rule of Law Initiative. We're still doing it 30 years later. We're building partnerships to improve courts and prisons, train police and prosecutors and enhance educational systems and job training centers.

And something that's important and that perhaps ought to be addressed in greater detail is we're working to build partnerships with political leaders, with civil society, but also with business and the elites in Central America that have to take a role, have to play a role in -- certainly in finding a solution to the crime.

In addition to new partnerships with Central Americans, we're building partnerships across the Americas. One example is our cooperation with Colombia in Central America that's alluded to in the report. In Cartagena, President Obama and President Santos announced a new action plan for regional security cooperation at the Summit of the Americas, and that's something that we'll be putting place. And Colombia has been a wonderful partner for some of our efforts in Central America.

But besides the hard-core security work of CARSI and other initiatives, we're doing a number of other things. And one of them I'd like to talk about is the Partnerships for Growth, PFG, which is something that I was very involved in last year and still continue to be involved. The Partnership for Growth with El Salvador is an agreement that we signed last November. And what it -- what that was -- it's an intensive and whole-of-government effort focused on creating broad-based, sustainable economic growth.

And it started with something that was -- that I had assumed was done a lot in government, but I understand that it's really not that common, and it started with a joint Salvadorian-U.S. economic analysis of the economic constraints to El Salvador's growth. This was an agreement that called for that study to take place.

The idea was that it would start from a -- from an honest, serious economic analysis and then would come up with the proposed solutions. It's one of four agreements that the U.S. has signed for a Partnership for Growth compact, the other three countries being Tanzania, Ghana, and one more that I will remember in a second.

MR. : Philippines.

FERNANDEZ: Philippines.

As part of the partnership, the U.S.-El Salvador economic team conducted an extensive analysis, and it basically came up with two constraints that we were going to tackle as part of the agreement. One is climate insecurity, and secondly what's called low productivity in exports. You know, the Salvadorean economy is largely dependent on exports, and yet the Salvadorean -- the percentage of exports in the Salvadorean economy is way lower than the norm in other CAFTA countries.

And so we looked at how we could address both of those constraints. We also spent a lot of time talking to thought leaders around the U.S. and also in Central America and here. Here I have to thank Michael and his Inter-American dialogue, and Peter, for hosting some of these meetings.

And we came up with a joint action plan that we signed in November, as I mentioned. And to address insecurity, our two governments agreed to support institutions and programs to prevent crime and violence, including supporting units -- special units to combat crimes against businesses and in transit, against buses, which is a major issue in El Salvador.

On payday, thieves, thugs would board the buses and just steal the salaries that people have gotten that day. So what was happening is that factory owners didn't announce what day people would get paid. So you could get paid on a Monday and then not get paid for another three weeks, simply because they didn't want to tell thieves when you'd be getting your paycheck, because that would just -- that would just cause more theft.

And what happened is, in a couple of cases when the thugs and the criminals were not getting what they wanted from the buses, they burned them, and they burned them with people inside. And so we thought that in order to address the economic constraint, we also had to deal with the insecurity issue, and so we focused on transit, on buses.

We agreed to work on professionalizing the justice sector institutions, again -- improving the effectiveness of the criminal justice system and enhancing the security of prisons -- again, things that Michael's report talks about.

We also agreed to work together to create jobs for at-risk youth, including the creation of small businesses and working with our SBA, job placement, and also to support community policing throughout El Salvador.

And then, to improve productivity, one of the things that we agreed to do was to undertake actions to improve the business climate, to facilitate infrastructure, which is a critical need in El Salvador, and also to improve the quality of education.

And then probably the thing that I was very proud of is we forged an agreement -- we agreed to support the establishment of a national growth council, which is basically a council composed of some of the large business associations in El Salvador and businessmen and -women in El Salvador to have regular meetings -- and in this case it's happening once a week, I'm told -- regular meetings with the president, with the government to talk about what were some of the items, what were some of the initiatives that they were hoping that the government would undertake in order to promote a business -- a friendly business climate.

So this is something that, as I said, started in November. We're very proud of it as something that we hope is different, because again, it started from a joint study and it was a joint agreement on the part of two countries.

The last thing I'll talk about that fits in well with the report is what we're calling Domestic Finance for Development, which is a program announced by Secretary Clinton about a year ago, which basically tackles one of the items that's throughout the report that Mike talks about, and that's the weak state, the weak state apparatus. And DF4D, Domestic Finance For Development, starts from the premise that in order for countries to be able to own their development, ultimately they have to be able to pay for it. And when you look at the tax intake on the part of Central American government, as Michael points out, it's low by regional standards, it's low by national standards -- by international standards.

So one of the things -- and as a result of that they, you know, they have trouble paying for education, for the basic services, for the court systems and the like. So one of the things that DF4D does is it works on tax administration. It doesn't get involved in what the actual rate -- tax rate ought to be. That's hard enough to do in this country. But what it does is whatever rate is agreed upon by the country, it talks about, how do you -- how do you collect it, how do you administer it. And then it says that if you're going to do that, then you're going to have to convince your citizens that those funds are not going to end up in a Miami bank account. So you've got to work on corruption, and you also have to work on transparency. The citizens have to be told where those funds are going to end.

So this three-legged stool of transparency, anti-corruption and tax administration is part of DF4D. It's something that we are working on in both El Salvador and in Honduras, which are two of the countries that I think need it the most.

So our hope is that, through DF4D, the -- Honduras and El Salvador will be able to increase their capacity to generate domestic revenues, to fund their own crime prevention and development programs and thereby reducing their dependency on foreign assistance.

So these are some of the ways that we're working on the issues that are outlined in Michael's report. I was heartened to see that many of things that we're trying to do were things that are in the report, but I'm more interested in hearing his thoughts and your thoughts on what are some of the things that are in the report that we perhaps are not doing yet. So with that, let me just turn it over to Paul and Michael. Thank you.

STARES: Terrific. Thanks very much, Jose.

And I think that's a good -- very good platform for you, Michael, to run with, if that's the right --

MR. : Correct.

STARES: -- mixing metaphors. (Laughter.)

MICHAEL SHIFTER: Thank you. Thank you, Paul, and thank you, Jose, for agreeing to join us and for your -- for your excellent comments. And I want thank everybody for coming. I see a lot of friends and colleagues here in the room. I look forward to a good exchange, discussion.

I particularly want to thank and recognize Carla Hills, who's co- chair of the dialogue of the council and a lot of other organizations I don't -- (laughter) -- some day I'll understand how she does it all, but so far it's a mystery to me. But thank you, Carla, for being here.

And I also just want to thank the council for giving me this opportunity. It's hard to compete with Afghanistan and Iran and North Korea and to think about Central America and try to focus some attention on Central America because I think the council should be commended for that because it often gets lost in some discussions of foreign policy.

I'm reminded -- if I could just start maybe with a few reflections, 12 years ago I did a report -- the dialogue did a report with the Council on Foreign Relations together -- this is a council report; the other one was a joint effort that we did on Colombia and Plan Colombia. That was in 1999, 2000, and many of you in this room will remember that debate and discussion.

And as I was writing this report, I found myself thinking -- going back to that report, 12 years ago, when I said -- asked myself, you know, why should the United States care about Central America? The same question I asked 12 years ago -- why should we care about Colombia; what should our objective be in Central America -- was the same question I asked -- what should our objective be in support of Colombia? What's the sense of U.S. responsibility to Central America?

Well, there were some similarities with Colombia. Here we have a situation where there is a democracy, rule of law that's at great risk because of spreading criminal violence to a neighbor, as Colombia was. And one could even argue that Central America the rationale is even more compelling. This is a set of countries that's closer to the United States. There are 3 million Central Americans who live in the United States and remittances, as Jose knows better than anybody, are a very important share of the economy of these countries. The United States had a very -- there was a time when Central America was the highest priority for U.S. foreign policy, in the 1980s. And so there's also a sense of responsibility as well. So for reasons of demography and history, one could even make the case that Central America is more important than Colombia.

And then, of course, there's the issue that's a term that used widely today of so-called shared responsibility, which was a term we used back 12 years ago in Colombia.

It's not that original. The United States is the largest consumer of drugs. Drugs is an important factor and dimension of the violence that is really having a tremendously adverse effect, particularly in Honduras, El Salvador and Guatemala, but also in other countries. Look at Costa Rica, a country that we still associate with sort of tranquility, serenity, peace and order. They are being hit very hard by the drug-related violence and are not prepared to deal with it very well and don't have an army, haven't had one since, what, 1948, and so they have to strengthen their police force.

So there's tremendous pressure on a lot of these countries. A lot of it is fueled by the drug issue. It's not only the drug issue. I think that Jose put his finger on it when he talked about weak state capacity, weak governance structures. And if you look at the comparison with Mexico, Mexico is also going through a very difficult period, but Mexico has state capacity. Central America is much less equipped, doesn't have the resources and the development of state structures to deal with this violence. So I think, in that sense, there are a lot of similarities.

And then what's the objective? The objective not to turn Central America into Sweden, as that wasn't the objective in Colombia as well. It's to get the violence under control, to reduce the levels so that you can have, as Jose said, economic development and a much more productive society, and that is so that situation is manageable and doesn't pose the threat that it currently poses. That was the -- that was the very similar argument that I made in the report 12 years ago with respect to Colombia.

The report covers a variety of causes of the violence, which I think it's hard to reduce to any one factor, and one has to be careful about not mixing one country to another country. It's quite different, and they have different phenomena. And in some countries, gangs are more important; in other countries, cartels are more important. Some countries, the effect of Mexico -- of the drug organizations going south is -- has a greater presence, and other countries less so. In some, there have been political crises. We know about the Honduras crisis and the coup of 2009. That had an impact on Honduras. So the report tries to look at it from a regional perspective, but also takes each country and national situations as well and look at the particular characteristics of national situations.

It also looks at attempts by governments to deal with this problem, individual governments: the so-called monduro (ph) approach, sort of round up everybody, arrest everybody, which is why you have overcrowded prisons and the prisons problems that we've had in a number of a countries, to some reform efforts to try to deal with corruption seriously, to try to improve the capacity of the police and so forth.

There have been some successes, some gains, but nothing very sustainable. And the situation, I think, if one looks in the last couple of years, has gotten worse, and insecurity is spreading.

The United States, I think, after this period of almost being obsessed with Central America in the 1980s, when the peace accords came, it kind of fell off the radar and then came back towards the end of the Bush administration and the beginning of the Obama administration. And Jose mentioned the CARSI program and other programs that are -- that have been in effect.

The recommendations that are in the report point to both things that I think would be useful to think about, both in terms of dealing with Central America as well as domestic policies, U.S. domestic policies that have a profound impact on Central America. This is also one of the situations in the world, I think, where one could make the case pretty persuasively that what happens in the United States in terms of drug policy, immigration policy, control of arms that are moving south does have an effect to our countries -- to our neighbors to the south, perhaps more than in other parts of the world.

The first point, the recommendation is really -- is always a tough call -- and this was also similar in the Colombia case, if we remember -- is this balancing act of the U.S. taking a more active, vigorous role in trying to shape a coordinated approach with at the same time making sure that there's buy-in by individual countries, in other words, that the United States is not going to impose a solution, but also, the United States can't come -- stand back and say, OK, every country can do what they want. There should be some middle ground there. And I think -- I think, to the administration's credit, they have moved a little bit in that direction of trying to balance that.

Also, this is not just not a Central American problem. This is Mexico. The successes in Mexico have moved south and have aggravated an already difficult situation. The drug routes have changed and now go through Central America, so the -- where drug routes have improved, those countries have a responsibility. The producer countries of coca -- we're talking about really cocaine in the case of Central America -- producer countries of cocaine -- Peru, Colombia and -- in South America also have a responsibility. And the United States is in -- uniquely positioned, I think, to try to mobilize that support and try to fashion a more coordinated approach.

There was, I think, a very promising meeting almost a year ago, I guess in June of last year, in Guatemala that Secretary Clinton convened. It was very, very instrumental and brought everybody together. But it's very hard to sustain a level of interest and support and resources that I think the situation requires and demands, and I think that is really a central challenge.

There are programs that -- one could list the long litany of programs that are in effect. Some of them are very helpful. But it just needs to be, I think, ratcheted up, given the gravity of the situation in the region. So the report tries to kind of identify where and how the U.S. should deal and balance this leadership role versus trying to encourage strategic sort of buy-in by the countries.

Second point is one that Jose touched on as well, which is having a strategic focus on institutional building. It's hard to see any long-term success in Central America in overcoming these problems unless you have a functioning and more effective justice system and police forces, that one -- that one can deal with what is criminal violence. And police are supposed to -- that's their job, that's their function. The police forces are very weak.

Again, there's been some focus on this, but I think it needs to be more -- it needs to get more attention. And that means that other things, like interdiction, going after high-profile drug kings and the like, perhaps should not the same attention. One has to do everything, but with limited resources, one has to pick and choose and select priorities, and in that situation this should get the highest priority, is the institution-building emphasis.

On the justice question, we have a positive example that one has to look at in Latin America, in Central America, which is the CARSI program, a U.N. program of a commission against impunity that has had a record, that's been in -- around for a couple and has had a positive record in going after and convicting -- prosecuting and convicting criminals, supporting the attorney general, supporting the public prosecutor office in Guatemala. This is a successful program that I think could be usefully thought about being applied in some of Guatemala's neighbors, especially El Salvador and Honduras, governments that I understand are interested in program, U.N. program. Obviously that's not something the U.S. could do on its own, since it's the U.N., but again, to really push for this, I think, would make -- would be very, very helpful.

There are also some community-level successful programs, initiatives that need to be looked at very carefully, scaled up, replicated elsewhere.

Nicaragua's an interesting case. It's a country where, I think -- which challenges some of the views of -- that poverty is the -- is the -- is the main explanation of violence. It's a very poor country, and yet the levels of criminal violence are much lower than -- for now, at least, to Salvador, Guatemala and Honduras. And that's due in part to the professionalization of the police force, but it's also due to some community programs -- level programs that have been successful, and they should be looked at more carefully.

The question of military aid and military assistance is a very tricky, sensitive and controversial one, in light of the history that we're aware of in Latin America, in Central America. One of the positive things in the region has been the downsizing of these militaries since the civil wars in the 1980s, and I think it would be -- one has to be very careful about building the militaries back up. And on the other hand, there's a lot of public pressure from -- for a much tougher stand on -- obviously people are concerned about public order and safety and security. But I think the United States should really be very cautious on this question of military assistance and really concentrate strategically on the building of an effective police force.

And finally, there's the issue of the fiscal reforms, some of the questions that Jose raised.

Again, the United States should not lecture Central Americans about taxes. But if this is going to work, this is going to have to be some commitment on the part of the private sector in countries that have low tax rates, weak tax collection, and there has to be -- that's the only way that one could imagine that this is going to happen.

In Colombia, there was a call in -- for a special tax, a security tax. That's also taken place in Central America. But more of that needs to be done so that people also contribute and really feel that they're committed to what's happening at the national level in dealing with this issue.

On domestic policies, those are the main highlights of the recommendations of what the U.S. should do dealing with Central America. Then there are things to be done here at home that would have a positive effect in Central America. The first is the drug policy, and we saw this come out at the Summit of the Americas in Cartagena. This was probably the biggest issue that was discussed. I think it was very encouraging that it was talked about at the summit because if -- the drug problem may not be a big political issue in the United States; we may not be seeing violence spreading around in our cities because of the drug issue, but certainly that's happening in the region. And it wasn't surprising that the leaders would bring this up with President Obama.

And one of the leaders on this issue has been Perez Molina, the president of Guatemala, who has been very forceful on this. And no one can accuse him of being soft on crime given his background. And yet he has -- is pushing this.

This is something -- I'm not going to get into, you know, what's a solution to the drug problem. But I do think that it's a problem that deserves serious discussion and debate and that the United States -- even though there's not political pressure to do so here, if the United States really were engaged seriously in really looking at other approaches, other alternatives, it would be a very positive sign for many of our friends in Latin America that there is a sense of shared responsibility.

Then there's the question of guns and money that's flowing south. This has been discussed widely. Again, this is -- this is an issue where a lot more needs to be done. There have been steps that have been taken, and I think the Obama administration deserved credit for that. But in terms of background checks of these guns and just the flow of them to -- that are supporting -- that are getting to the hands of criminal groups, again, a more energetic approach.

Finally, on the domestic policy side, immigration and deportations -- there's an estimated -- for example, in Honduras, 25,000 Hondurans were deported last year, I think similar number of El -- Salvadorans. There -- we're not going to end deportations, and that's not -- that's not the recommendation in the report. But what we do say is that it's very, very important to communicate exactly what the background of these deportees is and to really coordinate very closely to -- with officials in the host countries.

The sense is that this is being done to some extent. It could be done a lot more. And especially if people with criminal records go back to these countries that are already very fragile and very volatile, it's particularly urgent that that kind of effort is really taken very, very seriously.

Let me just conclude with two points, and then I look forward to your questions, comments and discussion. One is that this is a real opportunity. The need not only is great because of the -- because of some of the data that we have, the highest homicide rates in the world of last year in Honduras and El Salvador, Guatemala not far behind. So the need is very compelling, but also the opportunity. You have a set of governments in Central America that essentially are open and interested in working with the United States and cooperating more with the United States. That may not be the case a couple of years from now. One doesn't know. And so there is a window where a partnership can be forged that is very, very important and very effective. So there is a sort of a -- there is an opportunity and a moment here that needs to be seized, I think.

And just to conclude, I've gotten some skepticism about this report, as I did with the Colombia report 12 years ago. Let me conclude on this, and people -- as I presented the Colombia report, everybody said, you know, you're crazy; why should you support Plan Colombia; you know, this is a corrupt government and nothing will happen; it will all be wasted. And in some ways, you know people have -- I've gotten similar reactions to Central America, which has been interesting.

And it's true that the drug issue is not the concern it was 12 years ago, and it's also true that we're in a different fiscal and foreign policy environment.

Remember 12 years ago when Plan Colombia was approved, it was a year before 9/11, and 9/11 changed a lot of things. And then our economic problem -- and I don't think Plan Colombia would have been approved after 9/11. It would have been much more difficult. The attention would have been elsewhere. So the context is different.

But I just think it's important to recall that Colombia still has enormous problems. I don't think this is the -- you know, the greatest success story in the history of U.S. foreign policy. But the fact is that it's a very much better situation than it was. The Colombians deserve most of the credit for that, but the U.S. made an important contribution, and they -- because they sustained attention and high levels of resources and productive engagement with Colombia, and I think one can think about some -- and a similar kind of approach and strategy in dealing with Central America.

Thank you very much.

STARES: Great. Thank you, Michael. I take the skepticism as a good sign. I think if there wasn't the skepticism --

SHIFTER: Right. (Chuckles.)

STARES: -- that you wouldn't have been doing your job properly. So I appreciate that, and for your presentation, Jose.

We're going to open it up. We've got a good chunk of time. As normal, just put your name plates up, and I'm going to have probably a hard time reading everybody, but I will try my best. I think, David, you're first.

QUESTIONER: Thank you. David Holiday, from the Latin America Program of the Open Society Foundations. My question is primarily for Assistant Secretary Fernandez.

You spent a lot of time talking about El Salvador and the Partnership for Growth. (Chuckles.) And interestingly, there were -- there were reports in the Salvadoran press that the U.S. conditioned the Partnership for Growth on removal of the minister of justice and public security, which happened. And the person who replaced him was a general and former minister of defense. And actually, it's happened -- there has been a few interesting developments in the last few months, some worrisome and some interesting.

A couple of sort of the worrisome developments are discussion -- or the movement of -- within the police, of personnel, including perhaps putting some less savory people in different positions of leadership. Concurrent with that is a weakening of the inspector general's office, who resigned and has not been replaced. And it seems those two things are very much linked, because if you don't have good accountability, then, you know, I can say whatever I want about someone, but we actually don't know who's sort of -- who are the good guys within this -- the police force or not.

And I was reminded because recently I met with the head of international cooperation of the Colombian police. And his own personal narrative really started off with saying, you know, when I joined the police, it was so corrupt, I really wasn't sure I should be there, but then we started arresting the bad guys, and I myself put the cuffs on a colonel. And that -- and I think we sometimes lose track of the importance of accountability -- internal accountability within police forces, and external as well -- you know, criminal prosecution, where necessary. So those are the -- kind of the worrisome developments.

And the positive thing that I'd like your comment on -- or not positive -- it's positive that homicides have been reduced, but there's a very interesting gang truce now. And I don't know -- thoughts on that? What sort of should -- what are the parameters of, you know, when -- obviously, we have a lot of experience with gangs in our own country and sort of -- I don't know. What do people think about that reality?

STARES: There's a lot there. (Chuckles.)

FERNANDEZ: (Chuckles.) I feel like a mosquito in a nudist colony; I don't know where to begin. (Laughter.)

The -- look, I mean, accountability is critical, and it's part of what we -- what we stress -- both of us stressed. The agreement actually provides for specific milestones that we want to meet for specific things that will be done within a short period of time and then medium- and long-term, all the way to five years.

But I'm not familiar with the -- with the -- with the situation with the -- at -- in the accountability office in El Salvador, but it's -- it is something that, you know, we have -- we are scheduled to have a meeting with the Salvadorians every couple of months on the progress, and I'm sure that's something that will come up if that is an issue. But I'll be the first to say that we insisted on -- both sides insisted on making sure that we had -- we had accountability and to -- and to focus on results as opposed to process.

STARES: Do you have anything to add, Michael?

SHIFTER: I would just add that, you know, I think this question, the last part of your question, about this -- the gangs and the truce and all of this I think deserves a lot of debate, frankly.

And you know, I don't think it's the -- I'm not saying I think it's the solution, but one has to recognize if, you know -- if you're living in El Salvador and there's a truce that produces no violence, that's something that's very meaningful and to take to account. I don't -- you know, I'm not saying it's the answer, but I have seen some comments and some analyses that have come out of the Salvadoran situation, and it just strikes me that there are a lot of issues there. And they're not -- haven't been thought through. And I haven't thought them through because this has just happened. And -- but I think -- I would -- I think it's something that's worth looking at without just saying either this is the solution or this is terrible and we can't even think about this, because, you know, it has consequences.

STARES: Thank you.

Johanna (ph).

QUESTIONER: Yes. Thank you, Paul, and thank you to both of you for a very good overview. I -- something struck me in the report, Michael, about the recommendation on the rule of law because I think we've seen this for 25 years. And not as a critic of what you're saying, but we've invested billions, literally, of dollars in improving court systems; we've built Kubla Khan legal palaces. But the access to justice still remains a real key issue and people's confidence in the legal system continues, in polling that we read, to be very low.

So I was wondering, given new technologies and tools that exist, whether one could do things in the field of alternative dispute resolution that begin to give people confidence that the state does care about justice, whether it's the robbery of someone's salary, which is not necessarily a gang action, but a criminal action. I've seen very little progress there, a lot of push on the police, which I think is an important entry point, but the police without a legal justice system is only a part.

So have you thought -- and Secretary Fernandez, perhaps you as well, coming out of the legal profession -- thought of ways that you could provide a better sense of access that would give citizen confidence as a first step to building a stronger state institution?

MR. : (To colleague.) (Do you want me to ?) --

QUESTIONER: In 20 seconds, right? (Laughter.) Right.

SHIFTER: As you know -- as you know, Johanna (ph), there's been -- I mean, that's a great question. And as you know, there's been a lot of work in a lot of places in Latin America on alternative dispute resolution, and it's been -- some of it's been very, very positive. And I think if one looks at sort of this whole issue of rule of law and justice and look at what happened in the last 25 years, that's one of the -- that's one of the areas where there's been progress.

QUESTIONER: But we don't have "Judge Judys," I mean, except on Univision. But I think -- (laughter) -- I've -- seriously, I've always thought, Michael, that that gives people more of a sense that you get a resolution of a dispute --

SHIFTER: Right.

QUESTIONER: -- than going to some court system where you can't even get in the door --

SHIFTER: Right, right.

QUESTIONER: -- because you don't have access to it.

SHIFTER: Right. Well, I had "Judge Judy" in the draft, but they took it out --

QUESTIONER: Oh. (Laughter.)

SHIFTER: -- one of my recommendations. But they thought it wasn't appropriate for a council report, so --

QUESTIONER: No.

FERNANDEZ: But let me see if I can -- I think you bring up an excellent point, and it's true. For the last 30 years, there's been a lot of money poured into --

QUESTIONER: We've been on a lot of ABA committees.

FERNANDEZ: -- a lot of ABA committees, a lot of ABA money that has -- that has gone into Central America.

QUESTIONER: Mmm hmm. (Affirmative.) Yeah, legal --

FERNANDEZ: When I looked at the issue, one of the -- one of the things that struck me was the cost of the lack of access. You know, you get into -- and it's in Michael's report, the -- not just the impunity but also the lynchings, people taking justice in their own hand, and also the fact that the failure to observe the law permeated a number of other areas in the -- in the civil society in Central America.

When we looked at it, one of the -- one of the suggestions was some sort of out-of-court process, arbitration and the like. The issue there that I was always coming up with is you can't fix a legal system by circumventing it. You actually have to address the system itself.

There's been a lot of work done on it, and I think it's going to be -- you know, the criminal process and the accusatory process is slow. There's been talk and it's been -- the ABA and others have worked on this in Mexico -- of putting in a much more Anglo-Saxon -- which has its own problems -- Anglo-Saxon system of direct trials, less of an accusatory "fiscal general" type of system.

The other angle that I think is important -- and I never got to do it because I ran out of money in El Salvador, but I think it'd be -- in Central America -- but I think it'd be useful -- is our concept of small claims courts, which is something that the Brazilians have used in some -- in some cases.

QUESTIONER: Right.

FERNANDEZ: And it's a way of -- within the system -- you're not circumventing the system through arbitration -- of improving the system.

And I think that's something that, if I ever have the chance, I'd love to work on.

STARES: Barry Calder (ph).

QUESTIONER: Yes. Michael, in the report and in your presentation, you -- I think your preferred solution is something along the lines of the cooperation between the U.S. and Colombia that has led to a better situation. What I'm wondering about now is what you think about the future of the ideas to legalize drugs. As you mentioned, Perez Molina has come out strongly for legalization. It came up at Cartagena as a big issue. The U.S. isn't interested in that, particularly this year, I would think.

And so is there a danger that we're going to diverge with one of the key countries in Central America, or do you think maybe with financial aid and other support, we might get them to moderate their views on this, because I feel we're not changing soon, the United States, but there are powerful forces, (maybe ?), to change down there.

MR. : Jose -- (inaudible)?

FERNANDEZ: No. (Laughter.)

SHIFTER: My sense is that there's a consensus that the current drug policy is not really producing results, and it's been in effect for a long time. I don't think -- I think we're very far from any kind of alternative consensus. And legalization is -- is a way to get attention and to provoke a debate. Hopefully it leads to -- in a constructive way.

But I think staking out -- I mean, you know, I think if one -- one doesn't rely have a lot of basis for making -- you know, for making the claim that this is going to really be the solution of the problem, of the drug problem. And Perez Molina, I think, got a lot of attention in his position, but my sense is that there's room for a lot of discussion and that there are other measures.

There was a Latin American Commission report led by President Zedillo, President Cardoso and President -- former presidents Zedillo, Cardoso and Gaviria, came out in 2009, which I think was -- sort of laid out in a very sensible way, you know, that this is really having a very negative -- current policy is having very negative consequences. And there may be ideas that are on the table, and decriminalization of marijuana, focused less on sort of rounding people up and -- (inaudible) -- I mean, there are measures that are intermediate measures that don't go sort of towards legalization.

I think that it's a mistake to think that this is a unified Latin American position. As you know, Perez Molina called a conference -- right? -- in Guatemala, and they had two presidents who showed up and other presidents didn't show up. So even if you take -- forgetting about Latin America for a second, just take Central America, take five countries, that there are very sharp differences in view.

What they agree on is that something else needs to be debated and discussed, and I think the United States not just should say, well, this is -- you know, let's listen to the Latin Americans and let them (say ?), but really engage in it, use the expertise that's in this country. And a lot of people know about this drug issue because they've been studying it for 25 years or whatever, have a lot to say, should be part of that discussion and try to help fashion measures and approaches that don't go -- you know, that are realistic and that could -- that could have an effect.

I should also say that the drug problem -- even if one were to wave a magic wand and solve the drug problem, you know, there's still criminal -- there are a lot of sources of criminal violence that have nothing to do with drugs. There's, you know, trafficking of arms and people and extortion and kidnapping. So we go back again to the issue Jose raised first of just the kind of institutional state capacity which is the underlying challenge, and that shouldn't be lost sight of as we -- even as we tackle alternative approaches to the drug issue.

STARES: Any comments?

FERNANDEZ: Sure. Look, I mean, you really feel for the Central Americans and discussing --

QUESTIONER: (Inaudible.)

FERNANDEZ: Sure. Sorry.

You feel for the Central Americans on this point because they really are between a rock and a hard place, in this case between the U.S., the largest consumer, and -- you talk about the balloon and how -- the balloon effect on Colombia. You improve the drug situation, but it moves on to other countries, and it's now hitting them.

We don't think legalization is the answer. And I was in Cartagena, and what President Santos was very clear about is that he wasn't proposing legalization, he just wanted to have a discussion.

And that's something that our government was obviously willing to do. There are a number of other countries that are not in favor of legalization, even within Central America, as Michael pointed out. So this is -- this is a debate that's occurring, and I think it's going to go on for a while.

People who have looked at this issue in Europe, where you've had some legalization of some, quote/unquote, soft drugs, you know, have seen a rise in addiction. And it's not -- it's not a pretty picture. So we have our concerns.

And then knowing Central America, I shudder to think what a -- you know, a well-financed above-ground drug dealer would do in a -- in a -- in a -- in a country that has a weak state apparatus. And just think of that as a -- as a consequence.

So I think -- I think our government is -- has come out against it. We're obviously willing to discuss it, and I think this is an issue that has a lot more than simply just a talking point. It is a very complex situation.

STARES: If I could add my two cents on this, in one of my many incarnations as a policy analyst, I actually wrote a study on drug legalization for the Brookings Institution about 15 years ago. And people propose this as if it almost means no regulation, when even licit drugs, legal drugs, have some kind of regulatory regime that controls, you know, which drugs in what quantities are sold when to whom, how, advertising. This is a hugely complex set of questions that have to be addressed. And as far as I know, even the proponents of legalization have never systematically gone through what a regulatory regime would look like for currently illicit drugs, because it's not as if they would suddenly become available to everybody anywhere, anyhow, et cetera. But correct me if anybody knows of details -- assessments of this.

But each of those regulatory constraints on the sale of what would now be legal drugs have implications for the marketplace, for public health, even still for criminal activity. So it's not as if it's somehow a -- as Michael says, a magic wand that this issue would disappear. But I'd be happy to send references to the study I did on this so many years ago.

Anyway, let's see, who's next? I think Bert (sp).

QUESTIONER: OK.

(Phone rings.)

QUESTIONER: Sorry.

QUESTIONER: I think Jose and Michael gave a beautiful analysis that covered 99 percent of the -- of the ground. But there's one thing that I would -- (inaudible) -- a little bit. I've been living for seven years in Central America and the Caribbean as an IDB representative. And the one thing that struck me was the very low degree of social emergence in these countries. It was always the same families who were doing -- always controlling every business, every industry, every banking -- and -- (inaudible) -- for it. And Jose mentioned the low labor productivity.

And it goes a little bit beyond the physical productivity, because many of these countries gambled on the zona franca model, the export processing industry.

But that one suffered from two things. First of all, it suffered from a lot of absentee landlordism. It was quite often not local entrepreneurs who set up these things. They might have been involved in a joint effort, but often it was Chinese companies or Korean companies or faraway companies. There was little learning curve on the side of the entrepreneurship, but also on labor. It's -- for labor, it was a dead-end street because it was basically the old day labor situation. You could maybe have a job tomorrow, but certainly not next month, or -- and so on. So it didn't really emerge.

The other aspect that I would like to point out is the educational system in these countries, because there is more effort dedicated to social sciences and letters and whatever than there is to some core activities in education that can speed up the development process in the country -- in math, science and technology. And the region is underrepresentative in those areas. Too few students choose those relatively hard-core things, and they miss a lot of opportunities for learning and for again speeding up labor productivity in the future. And in the other one, you have beautiful business schools that the IDB supported very strongly in -- (inaudible) -- but with very high tuition rates or whatever. The access to that beautiful institution is relatively limited in terms of social emergence of certain groups.

And those two things, I mean, have been hampering the development process in the region rather strongly.

FERNANDEZ: Let me -- I have a question. Why do you say that the -- you started out by saying that the free zone market hasn't worked. My understanding is that it has worked. In a place like Costa Rica has -- it's -- it seems to have worked. In Honduras, with the maquiladora, seems to have worked. I'm not aware of the Salvadorans having much in the way of free trade zones. Tell me again why you think it hasn't worked.

QUESTIONER: Well, they started relatively early. But then Mexico moved into NAFTA. And Mexico became a major, much more large-scale producer of many things. And a lot of higher-technology stuff, including in the -- in the motor industry moved to Mexico and never returned. So -- and the other one is Mexico itself suffered from the emergence of China very strongly in that area.

So in the end, what stayed in the region often has become a very low-margin, relatively low-wage type of thing, whereas you would see, in terms of development process, what's happened in China, that you've started at a low end, but you get out of cheap textile and cheap (food or whatever ?) rather quickly, and you move into the higher electronic business or whatever. That process has not happened in Central America. Or where it has happened, it has been happening by very low import -- or very high import tariffs and things like that, too much protection.

FERNANDEZ: My understanding has been that the tariff regime in Central America is quite low, at least with respect to the U.S.

I will agree with you that the educational system, some of which we've targeted in the -- that we've targeted both in the PFG and in other programs in Central America is a critical need.

And part of the reason why you still have a system that depends on labor inputs, i.e., cheap labor is that you haven't been able to raise the educational system, not necessarily in a -- in a classic liberal arts setting, but in a vocational school type setting. And that is something that we've tried to address not just through the PFG, but through other programs. And that is a challenge.

QUESTIONER: Yeah.

STARES: Mark (sp), did you have a question?

QUESTIONER: Very kind of asterisk, but if I could hop on the legalization of drug question, since you raised your study, has there been another study out there that's talked about kind of if you taxed it and regulate it and focus the money that was supposed to be focus on enforcement into drug treatment and other programs, what that might do to the spectrum of challenges that we might face and Central America might face?

MR. : Do you know, Peter (sp)?

QUESTIONER: Not really. I mean, it's one of the problems --

MR. : Peter (sp) -- (inaudible). Peter (sp), go ahead.

QUESTIONER: I mean, it's so hard to sort of begin to play out the -- what happens if you do begin legalization. First you have to define a whole lot of details like you're really talking about legalization, or you're talking about decriminalizing marijuana. And you know, people use that word in a variety of ways. And the most important question is not that question; it's what are the real alternatives, as Michael suggested.

And you know, it's not just that legalization is bad. It is bad. But illegalization is bad also. And you have to weigh one against the other, and you have to sort of look at the outcome. You have to be about -- whether it's alcohol or prescription drugs or marijuana or other drugs, what is a strategy that will reduce the amount of cost to societies?

And it's not a question -- it's not a moral issue; it's a very pragmatic issue. And I don't -- that's what I think is wrong with taking that stand against legalization without looking at the costs of keeping it illegal.

SHIFTER (?): (As we all know ?), it's the net -- a net assessment has to be, you know --

QUESTIONER: Exactly. And that's the problem. I mean, you can try and work out all those things, but you get lost after the first iteration of what is it going to cost, how many people are going to now be using drugs that weren't using them, et cetera.

STARES: It's hard to do a controlled experiment in a -- in a particular locality, too, because of the external factors that come into play.

SHIFTER (?): Right.

STARES: We've seen this in the Dutch case. So it's just hard to say, well, let's give it a try here and just see how it works, because is that a true experiment? But we can get into this.

Christopher (sp), I think, is next.

QUESTIONER: Yes. So in the discussion around the comparisons between Plan Colombia and Central America, one of the things that wasn't mentioned was that Colombia is an upper middle-income country with institutional capacity, human capital; Central America, many low- income countries, lower middle-income countries, relatively lower institutional capital and human capital, and so therefore the challenge of building institutions that can confront this massive traffic of tens of billions of dollars of drugs every single year.

And the other thing to note is that despite the successes of Plan Colombia, Colombia, Peru, Ecuador continue to produce lots of coca. (Chuckles.) And the coca continues to flow north. And so while there has been some production of marijuana, which Mexico has done for years, and heroin and all that, all the opiates, the coca is still flowing despite the successes of Plan Colombia.

So the question I have in terms of the U.S. government focus and effort is going after the money. And obviously, you have to strategically focus your efforts. You can't do everything everywhere. You can't fix these societies overnight in the short term.

One of the areas that I think merits emphasis is on bulk cash smuggling, on going after money laundering, and then also on financial disclosures by senior officials in the justice sector, by judges, et cetera. Obviously, people around the world think of all kinds of creative ways to move and to hide money, and we grapple with this problem even in this country.

But I would be very interested in our distinguished panel's thoughts on those issues.

STARES: Going after the money.

FERNANDEZ: You know, Michael, this is your show. You keep --

SHIFTER: I'd be happy to --

FERNANDEZ: I'll let --

SHIFTER: I just want to defer to the, you know, authority, you know. (Laughter.)

FERNANDEZ: Right. The -- I mean, I think there's something in the report, actually -- I was looking for it -- on how the -- how few convictions there have been on money laundering in Central America.

SHIFTER: Yeah.

FERNANDEZ: And that's -- that goes -- you know, you can -- that goes back to the -- to the need to create institutions, to focus on the courts that -- the criminal courts. And I will agree with you, it's something that -- as we look at the -- at the problem, the rule of law and the -- and the ability to enforce laws already, these laws exist. They don't need to change the laws; it's just a question of enforcing them.

And it's a critical issue.

And that's where focusing on -- focusing on technical assistance to improve the legal system and the policing system is something that we will continue to do.

FERNANDEZ: Yeah, I would just say -- I mean, I think your point is on the mark, and we deal with it a little bit in the report, maybe not at quite the emphasis. And again, the challenge was always sort of, you know, you can't do everything, and so what's going to be the focus. But we had -- I should mention we had an advisory committee that met several times and this issue came up a lot. A lot of the people sort of talked about this as really where a lot of attention needs to be done. I think there's been some things, but clearly not as much as there needs to be, and so I think it does deserve a lot more resources and priority. I think you're -- I think it's hard to argue with that point.

STARES: Karen?

QUESTIONER: Thank you very much. Is it on?

STARES: Yeah, it's on.

QUESTIONER: Great. So my name's Karen Bolker (ph) and I'm working with CeaseFire International. This is a program that based in Chicago that uses a public health model for addressing stopping the spread of violence by treating violence as if it were a disease. And I know that you have some research that you've done on that yourself in the past.

So I was really struck, in the report and in the predominance of the comments here today, on the emphasis on the top=down approach, the systemic, working with the governments, working with rule-of-law type establishments. And there's in one of your recommendations a comment that we should -- that the Central American governors should be the ones to fund the local efforts.

And I just wanted to maybe ask a little bit -- tease out a little bit more why is it -- why is that something that should only really be done by the Central Americans, and should we not be having both a bottom-up and a top-down approach, and especially when you have some methodologies that maybe could actually sort of quell the violence while you're dealing with some of the larger systemic issues that are by definition longer term.

And I noticed that the title is "Countering Criminal Violence," whereas the center is on preventive action and the method that we've worked with actually seeks to prevent the incidence of violence in the first place. So it focuses like a (higher beam ?) or whatever on the violence as opposed to all the other issues, the noise around the violence. So if I could just maybe get some reactions from you (and ?) -- (inaudible).

SHIFTER: Sure, well, thank you for the question. I mean, I don't think the report says that the U.S. shouldn't fund -- you know, also support local, you know, initiatives. But the point about the national governments, which they -- you know, that it's important that they, you know, assume responsibility, not that the -- only local initiatives should be funded by a national government and that the U.S. cooperation should not be part of that. That -- you know, that wasn't the sense.

QUESTIONER: OK.

SHIFTER: But it was simply -- so I think that the United States, when we talk about -- (here ?) one of the recommendations on some of the sort of -- sort of the prevention programs that are more successful, that these should be encouraged, replicated, scaled up. You know, so that's -- needs to be -- think there is

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Session Two of a Council on Foreign Relations Symposium on Organized Crime in the Western Hemisphere: An Overlooked Threat? Subject: Local and National Policy Responses. Held at the Council on Foreign Relations, New York.

Michael Shifter, president of the Inter-American Dialogue, discusses the influence of the United States on common and organized crime in Central America, and offers policy recommendations for what the United States could do domestically and internationally to mitigate the violence.

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